According to the report by The Block, Coinbase agreed to pay $100 million in a settlement with the New York State Department of Financial Services (NYDFS) over its failure to scale an anti-money laundering program.
The regulator noted that Coinbase’s compliance system couldn’t keep up with the unexpected growth of its business driven by surging cryptocurrency prices and was overwhelmed by the end of 2021. The growing backlog of unreviewed transaction monitoring alerts exposed its platform to the risk of exploitation by criminals and other bad actors, the NYDFS examination found.
“Indeed, during the course of the Department’s investigation, the compliance situation inside Coinbase reached a critical stage. By the end of 2021, Coinbase had a backlog of unreviewed transaction monitoring alerts grew to more than 100,000 (many of which were months old), and the backlog of customers requiring enhanced due diligence (“EDD”) exceeded 14,000,” the settlement read.
“Although the full extent of activity that was contained in Coinbase’s TMS backlog has not been fully determined, the Department has identified troubling examples of suspicious conduct that should have been identified, stopped, and (in some instances) reported to authorities but was not, at least initially, due to the backlog. This includes, among other things, examples of possible money laundering, suspected CSAM-related activity [child sexual abuse material], and potential narcotics trafficking.”